The Future of the American Hospital: Role and Relevancy in the Next Decade

If predictions ever hold weight, they certainly don't in the healthcare industry. Too much is prone to change — like the Patient Protection and Affordable Care Act, which awaits its summer Supreme Court ruling. When components of an industry as large as its entire reform law aren't even certain, it's tough to say what is.

Short of forecasting, healthcare and economic experts have some sophisticated thoughts on how American hospitals could transform in the next decade. Will hospitals remain the cornerstones of community healthcare? Could hospital beds become void of certain diseases as medical discoveries either cure them or drive their treatment into alternative care settings? Will mediocre hospitals drop like flies in the next 10 years, while others behave like more consumer-oriented American industries, such as banks?

The questions vary but share a common theme: The role of the American hospital is about to undergo some serious change.

Fewer heads in bedsThe growth of outpatient service utilization is going to present the largest change to hospitals' strategic plans in the next decade. Care delivery in the outpatient setting is expected to grow exponentially by 2022, redefining hospitals' reliance on some of the most lucrative service lines. Sg2, a healthcare analytics firm based in Skokie, Ill., estimates a 27 percent increase in outpatient cancer care within the next 10 years. Other specialties expected to boom in this environment include general surgery (23 percent), neurosciences (22 percent) and cardiovascular (19 percent).

A simultaneous decline in hospital inpatient services is expected, affecting a range of specialties. Cardiovascular care will take the largest hit, according to Sg2, experiencing a 27 percent drop in inpatient volume by 2022. Recent studies and reports have already shown a dramatic shift in treatment locations for some of the country's most prevalent and serious conditions. From 1998 through 2008, heart failure-related hospitalizations declined by roughly 30 percent.1 In 1987, the share of total cancer costs resulting from inpatient admissions stood at 64 percent. Between 2001 and 2005, that figure plummeted to 27 percent, according to a 2010 study published in Cancer.2

These developments and forecasts have left hospital leaders re-examining their business strategies and how they plan to respond to changes in patient volume. In an interview last year, Kevin Tabb, MD, CEO of Beth Israel Deaconess Medical Center in Boston, said his organization is turning away from the heads-in-beds business model. "In the past we thought about, 'How do we get more referrals here downtown?' That's not the model for the future," he said in a report from WBUR, Boston's NPR news station. Instead of focusing acutely on referrals and patient volume, Dr. Tabb said he sees his hospital becoming part of a larger ecosystem.

Craig Rhyne, MD, chief medical officer of Lubbock, Texas-based Covenant Health System, also anticipates a decline in the relevance of inpatient volume. "As cost containment efforts continue in healthcare, there must be a greater emphasis placed on keeping patients healthy and out of the hospital. This will probably come in some form of community wellness model where physicians and hospitals are rewarded for treating conditions on [an] outpatient basis before they become so severe that they actually require hospitalization," he says.

Finding new niches in the healthcare ecosystemThese clinical changes raise questions over whether wellness maintenance — opposed to treating the acutely ill — is a viable business strategy for hospitals. The country's top-tier hospitals have tailored their specialty programs to incorporate survivorship services, health education and therapy. These multidisciplinary elements may have been deemed somewhat uncommon only a few years ago in traditional hospital-based treatment, but have become staples in patient-centered disease management. "Cancer used to be about surgery. Now treatment is increasingly focused on survivorship," says Eric Louie, MD, chief medical officer with Sg2. "All of it is moving to a wellness focus."

There is a distinct need for wellness services, particularly in the framework of today's healthcare continuum that aims for seamless care delivery. Hospitals are responding to declined inpatient volumes by finding other ways to add value to the healthcare continuum — and it's more than a gym. "I don't think providing a gym for people is a business strategy, necessarily," says Steve Lefar, president of Sg2. "But, providing the kind of care that keeps people well and has the right incentives — that will be a strategy. This is an issue of value. Those [hospitals] delivering that kind of value will have more patients sent to them."

For example, one of the survivorship programs offered at Johns Hopkins' Sidney Kimmel Comprehensive Cancer Center is specifically designed for breast cancer patients. The program's website3 says "living through treatment is only half the story," and emphasizes the need for hospital-based survivorship services, as "there is no organized system in place to ensure communication between a woman's cancer specialist and primary care provider once treatment is completed."

Groundbreaking advancements in genetic counseling services will help providers make enormous strides in preventive care and are likely to signal a sea change in healthcare. "The advent of modern genomics and the ability to understand what drives illness at a personal level will have an extraordinary impact," says Mr. Lefar. "We'll have a much better understanding of what people need to do to stay well," he says.

Dr. Rhyne also anticipates fewer people dying in hospitals within the next few years. He also expects a change in public perception — people will no longer expect patients with fatal diagnoses to die in a hospital bed. "The custom of dying only in a hospital is a fairly recent event," says Dr. Rhyne. "Prior to 50 or 60 years ago, most patients actually died in their home." Dr. Rhyne says that when hospital services or treatment no longer offer substantial hope for recovery or improvement, more patients may choose to resume this custom and die in their homes.

The partnering phenomenon The odds of a hospital surviving on its own — without being part of this healthcare ecosystem — are low, leaving many partnering, forming clinical affiliations, merging or selling. The current wave of hospital consolidation has involved unlikely suitors, such as for-profit corporations, private equity firms and insurance companies. Religiously-affiliated institutions are also pairing with public, secular ones — the New York Times4 recently reported 20 such transactions within the past three years.

Fewer independent hospitals will make it to 2022 without striking some type of deal with a larger healthcare system, but there is a new facet to the pending consolidation. With more options available today than 10 years ago, the million-dollar question has been extended beyond whether a hospital will merge or partner, to what it will merge or partner with, and how it will work as a local system.

Whether under the Medicare Shared Savings Program or a private, commercial model, accountable care organizations are a significant driver in healthcare consolidation. ACOs incentivize providers to control costs within the continuum of care, such as primary care, home healthcare, outpatient clinics and preventive services. This incentive makes integrated delivery systems the best option. "ACOs offer a model in which hospitals may be integrated, though perhaps on a limited basis, into a wellness delivery paradigm," says John Romley, PhD, an economist with the Leonard D. Schaeffer Center for Health Policy and Economics at University of Southern California. "Watching the rollout of ACOs will be fascinating."

While short of a strict merger or acquisition, providers are likely to collaborate for clinical purposes as well, especially in the age of personalized medicine. Medicine based on individual risk assessments or genetic coding is still novel, and a recent PwC report said hospitals that make long-term investments in genetic medicine and partner — with organizations either inside or outside the healthcare industry — are most likely to succeed in competitive environments. "Personalized medicine is a highly complex field, and no one organization or industry has all the resources, knowledge and tools needed to implement personalized medicine," the report read.

No more flying under the radarAmerica's hospitals are likely to be less in number albeit better quality by 2022, and financial performance won't be the only factor driving some hospitals' fallout. Increased transparency around hospital quality and the Value Based Purchasing Program, slated to go into effect in October 2012, have refined accountability in healthcare. The VBP Program is based on measures used in the Hospital Inpatient Quality Reporting program, including patient experience measures as indicated by CMS' Hospital Consumer Assessment of Healthcare Providers and Systems survey.

Patient experience ratings will determine 30 percent of the total VBP bonus payments. The HCAHPS survey asks patients a variety of questions, including one in which they must rank their hospital stay on a scale from one through 10. Aside from government regulation, marketplace competition is also propelling hospitals to vie for patients by posting the prices of their most common procedures online — a practice that was traditionally unheard of.

"Up until now, we haven't had appropriate transparency around performance and quality," says Dr. Louie. "In transparency's absence, a lot of hospitals flew under the radar. Now, low-performers are falling by the wayside." As hospitals publish infection rates or prices online for patients to view, they are beginning to resemble other industries that have been sharing similar information for years.

Modeling other industries in the face of increased competition Hospitals are finding themselves in a game of consumerism catch-up, according to Mr. Lefar. Business innovation in the hospital industry mildly resembles that which banks experienced. The emergence of convenient, transparent and customer-centered strategies like ATMs and online banking bears resemblance to telemedicine, for example. But hospitals still have a ways to go, according to Mr. Lefar.

"The demands from consumers are for this industry to behave more like other industries," he says. Although people can deposit checks from home and sign mortgages online — and have been able to do so for years — making an appointment with a physician online from the comforts of home is still considered novel.

American hospitals are likely to face a larger pool of competitors as well, including some entities that may have been less of a concern in the past. For example, even the country's most reputable and financially sound hospitals haven't been immune to the competition of retail walk-in clinics in neighborhood CVS and Wal-Mart stores.

Many physicians are quick to deem these care settings "as cheap, unworthy competitors," according to a 2009 New York Times5 report, but more recently, hospital systems have joined their ranks in a move to own one more pieces of the care continuum. In 2009, Cleveland Clinic partnered with CVS stores in northeastern Ohio and took over nine of the stores' MinuteClinics, assigning a physician to each one. Mayo Clinic did the same thing in 2008 when it began opening retail clinics in grocery stores within the Rochester, Minn.-area. Will a change in role mean a change in relevance?Role and relevance are entwined in any industry, begging the question of whether the American hospital will hold the same relevance in 2022 that it does today. Hospitals as many Americans know them today are likely to evolve into integrated, multidimensional institutions — much more than a building to visit when you're sick. "In a broader sense, as a convener of human activities and resources to deliver wellness care, [the hospital] will flourish. That will expand beyond the four walls of the traditional hospital," says Dr. Louie. "That's the role the hospital of the old will fulfill in the new world."